Bangladesh Bank extends special fund deadline to 2026 to boost stock market investment

Special fund is now available until Dec 31, 2026, with an additional Tk 2 billion for banks

Bangladesh Bank has stretched the deadline for its special fund set up to support stock market investments by banks, pushing the fund's validity until Dec 31, 2026.

Initially, the fund, amounting to Tk 2 billion, was set to expire in February 2025.

This initiative was introduced in February 2020 with a five-year term to encourage long-term investment in the capital market.

In a notification issued on Tuesday, the central bank announced the extension, providing banks with the opportunity to continue contributing to the fund until 2026.

The fund was primarily established as part of a long-term plan to stabilise the stock market by offering banks special liquidity and policy support.

The notification said the decision was made in light of the ongoing liquidity flow challenges in the market, aiming to maintain a steady liquidity supply and stabilise the financial sector.

It also emphasised the need for long-term measures to support the market in the face of current volatility.

A senior official at Bangladesh Bank told bdnews24.com that banks can now form this fund using their own capital.

In case they are unable to do so, they can borrow from Bangladesh Bank through treasury bills or treasury bond repos.

The extension of the fund deadline allows banks the flexibility to either use their own funds initially or resort to borrowing later.

Under the arrangement, each scheduled bank, including their subsidiary institutions like merchant banks and licensed brokerage houses, is permitted to invest up to Tk 2 billion for stock market purposes.

The repo interest rate has been set at 5 percent, with no auctions required for these transactions.

Banks are required to maintain a 5 percent margin on the treasury bonds or bills used for repo transactions.

If a bank fails to repay the repo in cash by the due date, the margin held against the securities will be used to offset any shortfall in the amount owed.

Should there be an additional shortfall, the bank will be obligated to provide the necessary funds to cover the difference.

According to the Bank Companies Act, banks can invest up to 25 percent of their regulatory capital in the stock market.

This includes investments in shares, debentures, corporate bonds, mutual fund units, and other securities traded on the stock exchange.